Chapter 7 - Taxes & Other Liens Flashcards
Encumbrance
Anything which affects or limits the fee simple title to or value of property imposed by someone who is not the owner, e.g., liens, encroachments, or easements.
General Lien
A lien on all the property of a debtor.
Involuntary Lien
A lien imposed against property without consent/approval of an owner.
Lien
A form of encumbrance which usually makes specific property security for the payment of a debt or discharge of an obligation - creates a security interest in specific, identifiable real property, for payment of the property owner’s debt or other financial obligation
–protection for a creditor
Mechanic’s Lien
A lien created by statute which exists against real property in favor of persons who have performed work or furnished materials for the improvement of the real property.
–Can be filed by carpenters, laborers, plumbers, electricians, HVAC or mechanical techs, architects, civil engineers, etc.
Priority of Lien
The order in which liens are given legal precedence or preference.
- Tax Liens
- Mortgage Liens
- Liens filed first (have priority in the order in which they were filed - first in time, first in right)
Specific Lien
A lien that attaches to one specific property only
Tax Lien
A lien imposed by law upon a property to secure the payment of taxes.
Voluntary Lien
Any lien placed on property with consent of, or as a result of, the voluntary act of the owner, EX: mortgage lien
Mortgage Lien
Property owner agrees to the lien as a condition of being approved to borrow funds to purchase real estate - mortgage lender has a lien against the property = amount of unpaid mortgage principal & interest
- -Voluntary
- -Specific
Equitable Lien / Judgment Lien
lien imposed on real property by the court system / legal claim on all property of a judgment debtor which enables the judgment creditor to have the property sold for payment of the amount of the judgment
–can occur when there is civil or criminal judgment against a property owner
Statutory Lien
lien created automatically by statute/law, EX: tax liens, landlord’s liens, mechanic’s liens, vendor’s liens
Property Taxes
Taxes local & state governments apply to real property (i.e., land & fixed buildings on it) based on county-based laws and local budgets. Property taxes pay for the most important infrastructure needs within a community, i.e., water & sewer lines, roadways, law enforcement, public servants & education, etc.
What properties are commonly exempt from paying property taxes?
most often non-for-profit properties - ex: government or city owned buildings, courthouses, religious organizations, charitable organizations, schools, etc.
Special Assessment
extra tax levied on a property to meet a specific funding goal for a budgeted project - EX: new recreation center, new park, new sewer lines, etc.
–generally not deductible on one’s personal tax return, like property taxes
Assessed Value
A valuation placed upon a piece of property by a public authority (tax assessor) as a basis for levying taxes on the property.
–not the same as the property’s market value
Assessing Unit
A city, county, town or village with the authority to value real property for purposes of taxation.
Assessments
A charge against real estate made by a unit of government to cover a proportionate cost of an improvement such as a street or sewer.
Tax Assessor
An elected or appointed official of a county, city, town or village whose function is to value real property for the purposes of taxation.
–may consider the overall availability of the land, size, features of the property, how much the values of homes within the community have increased/decreased
What are the 3 main methods to assess a property?
- Sales Comparison Method - compares value of current property to other properties in the immediate area
- Cost Method - what is the cost to reproduce the home?
- Income Method - depends specifically on how much income the property is likely to make for another owner (done for rental properties and commercial retail spaces)
Fair Market Value
value the home would sell for on the open market
–generally speaking, you can expect the assessed value to be less than the FMV
Tax Rate (aka millage Rate)
Amount of tax levied on a property determined by the total amount in tax dollars collected divided by the total taxable assessed value of the properties in the community.
–whatever amount is needed in order to collect enough money in taxes to cover budget needs
Per Mill
applying the tax rate per $1,000 worth of assessed value of the property OR 1 mil = 1/1000 OR 10 mill = 1% of the property’s value. Can either divide the property’s value by $1,000 and multiply that by the mill rate OR take the mill rate divided by 1,000 to get the tax rate and multiply that by the property’s value.
–This way, a property that is valued at $1,000,000 is not paying the same as a property worth $100,000. The higher the value of the property, the more that property should pay in property taxes.
Transfer Fees for Real Estate Conveyance
Fee imposed by the state that applies whenever a property is sold or gifted to another person or entity.
- -$0.30 for each $100 of value (purchase value or market value for gifts)
- -fee is collected by the Register of Deeds when the real estate transfer docs are presented for recording
- -Generally the fee is paid by the seller
- -Exceptions: transfer between husband & wife, parent & child, partnerships & partner, and transfers by will or survivorship.
- -falsifying a transfer value is a legal offense
